The Asian Development Bank (ADB) last month approved a $100 million policy-based loan to develop Vietnam’s finance sector and support long-term economic growth while tackling rising income inequality. Its Financial Sector Development and Inclusion Program represents a medium to long-term partnership in finance sector development between the ADB and the Vietnamese Government. Vietnam is in urgent need of a national strategy on financial inclusion in line with the country’s socioeconomic development strategy. Financial inclusion has become a global issue and considered key to addressing poverty and social inequality.

Access limited

The World Bank (WB) conducts a global financial inclusion survey once every three years that typically involves 1,000 observations in each country. In Vietnam, its FINDEX survey found around 31 per cent of adults have an account at a formal financial institution, far lower than in China (80.2 per cent), Malaysia (85.3 per cent), and Thailand (81.6 per cent). “The rate of Vietnamese people with access to official loans or savings accounts from financial organizations is lower still,” said Mr. Nguyen Ba Diep, Vice Chairman of MoMo.

There are currently no nationally-supported surveys to determine the extent of financial inclusion in Vietnam. “The WB is supporting the State Bank of Vietnam (SBV) in conducting the first national financial inclusion survey in 2019,” said Mr. Trieu Quoc Viet, Senior Financial Sector Specialist at WB Vietnam. “The survey is designed to determine the extent of demand for financial services throughout Vietnam and will cover at least 6,000 observations, which is a significant sample size and larger than the normal FINDEX sample size. This data, combined with a supply of financial services data, will provide a comprehensive picture with regard to the extent of financial inclusion in Vietnam.”

Financial services and products are mainly provided through traditional networks of bank branches and transaction offices in big cities but not in rural and remote areas, according to Mr. Nguyen Minh Cuong, Principle Country Economist at the ADB. “People living in rural areas, especially in isolated and mountainous areas, still find it difficult to access financial services,” he told VET. “Many micro and small enterprises consider the lack of access to formal bank credit as one of their biggest constraints.”

In that context, in 2016 the SBV was assigned national coordinator for developing and implementing the National Financial Inclusion Strategy (FI Strategy). The central bank is now formulating the strategy and developing a proposal on a financial technology (fintech) regulatory framework. There are, however, limits on the role of fintech in ensuring the provision of safe, efficient, accessible, and affordable financial services to all, according to Mr. Cuong. These include, among others, a lack of policy and regulatory framework and enabling environment that fosters innovation and collaboration among market participants, inadequate underlying public infrastructure, and low financial literacy.

To address such constraints, he went on, it is critical for the government, among others, to improve the legal framework for the greater diversification of financial services, the efficient implementation of agent banking models, the simplification of banking transaction procedures, the further development of financial inclusion infrastructure, and enhancing financial education, financial literacy, and financial consumer protection.

Programs in support

In order to achieve the country’s financial inclusion goals, the government has long been working with financial organizations such as the WB, the ADB, the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), and others.

The WB has a deep and ongoing partnership with Vietnam to support financial sector development and financial inclusion. One such program is the Financial Inclusion Support Framework (FISF) program, which provides technical assistance and capacity-building to financial sector authorities to develop a national financial inclusion strategy (NFIS), improve data infrastructure for financial inclusion policymaking, strengthen the national payments system, enable market entry and fintech innovation, build the financial capabilities of Vietnamese consumers, and strengthen financial consumer protections.

The ADB has also been among key development partners, supporting financial inclusion in Vietnam for more than 20 years. With full package support extended through the Microfinance Sector Development Program (MSDP), the Scheme on the Establishment and Development of the Microfinance Sector in Vietnam provides overall directions for developing a sustainable and affordable microfinance sector and also supports the formalization of microfinance institutions, with licensing from the SBV.

Mr. Cuong noted that the ADB has recently been partnering with the SBV to promote the nascent fintech ecosystem in Vietnam through awareness raising, capacity building, sharing of best practices, and the promotion of peer-to-peer lending among regulators in ASEAN and beyond. In late 2017, the ADB, the SBV, commercial banks, and other corporate partners launched the first-ever Fintech Challenge Vietnam (FCV), to foster collaboration and incentivize the adoption of fintech solutions that promote financial inclusion.

Vietnam’s financial sector has grown substantially but financial institutions still find it challenging to provide financial services to underserved customer segments, including small businesses, rural populations, and urban migrants. The recent worldwide explosion of fintech, including in Vietnam, promises to fill this gap. Fintech companies, which leverage technology and digital platforms to provide financial services at lower cost with wider and better access, have a key role to play.

Fintech boost

As the first mobile electronic wallet and payment application in Vietnam entering the Fintech100, the Top 100 global fintech firms honored by Australian capital firm H2 Ventures and Dutch audit company KPMG, MoMo has targeted using technologies to bring financial and insurance services to local people, especially in rural and remote areas.

Apart from its e-wallet for customers with a bank account, MoMo has also built a network of 8,000 agents nationwide, where people can come to transfer money, make financial services payments, purchase insurance, or pay bills. “It’s a mixed solution connecting technology and traditional models that MoMo is applying in order to pursue its goal of using technologies to develop financial inclusion in Vietnam,” Mr. Diep said.

MoMo serves over 3 million customers at its transaction points, where many customers have registered to open bank accounts to use its e-wallet after visiting to make financial service payments. “Customers can also apply for loans on MoMo and receive loan disbursements or make monthly loans repayment with the MoMo wallet,” he added. “MoMo also makes great efforts to coordinate with local authorities and international agents to participate in building projects relating to financial inclusion in Vietnam.”

Vietnam is undoubtedly a country with potential in fintech development. There has recently been a new wave of fintech startups in the country, expanding financial services to the underserved segments of the population, such as e-payments and peer-to-peer lending. More than 20 fintechs have been authorized by the SBV to provide payment/e-wallet services.

Amid this emerging fintech trend, banks have tended to shift from competition to collaboration to take advantage of new technologies and create new approaches to developing and providing financial services. Since 2014, the SBV has allowed some banks to collaborate with non-banks such as Viettel, MoMo, and Petrolimex, to pilot the provision of payment services in rural and isolated areas. Some fintechs are currently partnering with banks to scale up fintech solutions for financial inclusion.

Financial inclusion has also been the long-term goal of GoBear, a fintech in personal finance comparisons. It has already been contributing to Vietnam’s financial inclusion goals via two activities. Firstly, it partners with banks and other financial companies to run user campaigns that aim to build awareness about the risks of borrowing from illegal lenders, how to safely borrow from legal sources, and how to use GoBear to compare and choose the best option for their individual needs. It also announced a partnership with the smartphone-based alternative credit scoring provider CredoLab in early November, together launching Easy Apply, a smartphone app that enables banks, financial institutions, and lenders to extend credit to a larger pool of customers while keeping risks in check.

The partnership represents important headway in making financial services accessible to the 49.5 million unbanked people in Vietnam, with a regionwide financial inclusion initiative powered by CredoLab’s AI-based proprietary algorithms. “Vietnam will be one of the first markets to have the app,” Mr. Bao Nguyen, Country Director of GoBear Vietnam, told VET. “It will be an integrated part of GoBear’s user journey from early 2019 and will kick off in the personal loan segment and extend to credit cards, insurance products, and other credit lines. To achieve inclusive economic growth for Vietnam, we will definitely have to improve financial inclusion and better serve the unbanked population.”

Cash remains King in Vietnam, he went on. “Vietnamese people have a deeply entrenched culture of using cash,” he said. “Interestingly, as the prevalence of payment by check is low, and it seems very likely that the journey to digital finance will see customers leapfrog from cash to digital instruments.” Mr. Diep, meanwhile, said that existing legal regulations regarding fintech in Vietnam only allow for payment intermediary services. Thus, in order for fintech to truly thrive, a legal framework for other services needs to be implemented. Concurrent with rapid changes in technology, it would be ideal if the government adopts a fintech regulatory framework so that fintech companies can test new services and technologies.